The Supreme Court upholds Fed independence by saving Lisa Cook’s job—and also saves U.S. debt from a crisis

"Not only the fact of independence but also the appearance of independence is key to the Federal Reserve’s design."

The Federal Reserve retains a special status in the government that shields it from interference by the White House, the Supreme Court said in a decision that has critical implications for the bond market.

Justices ruled 5-4 on Monday President Donald Trump was wrong to try ousting Fed Governor Lisa Cook last August because she didn’t receive due process.

Trump’s bid to fire her—the first such attempt ever—came as he was demanding the Fed lower interest rates, despite data showing inflation remained elevated, due, in part, to his tariffs.

While Fed officials can be removed “for cause,” which has been interpreted to mean gross malfeasance or negligence, Cook was accused of mortgage fraud before joining the Fed. She has denied the charges and said she wasn’t given the chance to rebut the claims. Lower courts agreed with her.

“Under our precedents, Cook was entitled to notice and some opportunity to respond prior to her termination,” Chief Justice Roberts wrote.

He also asserted the Trump administration’s argument that a president can remove a member of the Fed “at any time, for any reason, without any notice before, and without any judicial check” would render the “for-cause protection into little more than at-will employment.”

Protecting the Fed from the whims of a president is vital to the central bank’s duty to set monetary policy free of political considerations, Roberts explained.

“Not only the fact of independence but also the appearance of independence is key to the Federal Reserve’s design,” he wrote.

The Supreme Court decision on the Cook case followed a federal district judge’s dismissal earlier this year of subpoenas related to a Justice Department probe into former Fed Chair Jerome Powell.

That judge said the subpoenas appeared to be meant to pressure Powell into lowering interest rates or resigning. The Justice Department has suspended its investigation, but Powell said he will remain as a Fed governor until the case is fully resolved.

That breaks a tradition from his predecessors, who have stepped down from the Fed board when their terms as chair expired. But Powell has been a staunch defender of Fed independence.

The Fed’s ability to fight inflation without outside meddling, especially if it entails painful rate hikes, underpins the bond market. If investors believed politics were influencing monetary policy, Treasuries would sell off as markets price in a greater likelihood of higher inflation that erodes fixed income.

That would make them less attractive to own, reducing demand just as the federal government needs to issue a flood of fresh debt to cover massive budget deficits. Bond yields would also jump and force the government to pay more to borrow money, worsening the deficit and adding further to $39 trillion pile of U.S. debt.

In fact, the Fed’s role in the bond market was cited by ratings agency S&P Global when it reaffirmed the U.S. debt rating at AA+ on Friday. While much of the language was similar to S&P’s annual rating update from last year, it was the first one since Trump tried to fire Cook and investigate Powell.

“The institutional strength and credibility of the Federal Reserve System provide the U.S. with considerable monetary policy flexibility,” S&P said. “The central bank has helped stabilize global financial markets time and time again. We expect the Fed to continue navigating the challenges of lowering inflation and addressing financial market vulnerabilities.”

Other U.S. attributes also factored into the AA+ rating, such as the strong economy and even tariff revenue that helps offset the federal budget deficit.

But the Fed’s independence and the dollar’s role as the world’s reserve currency are pillars to the U.S. rating, according to S&P.

S&P took away the U.S.’s top AAA rating in 2011 due to fiscal and political dysfunction. For now, the Fed is holding off another downgrade that could send more ripples through the bond market.

“The credibility of the Federal Reserve is unparalleled, supporting monetary flexibility and the role of the U.S. dollar as the premier international reserve currency,” S&P said on Friday. “These strengths help offset the U.S.’s prominent credit weakness: its fiscal trajectory.”

This story was originally featured on Fortune.com